HARTFORD — State insurance regulators defended their oversight of the industry during a conference here Tuesday, arguing that an extensive federal role in monitoring insurers is unnecessary.
Regulation of the industry has historically been left to states, but Congress established the Federal Insurance Office under the Department of the Treasury as part of the 2010 Dodd-Frank financial overhaul legislation. The agency was created to prevent economic catastrophes such as the near-collapse of insurance giant American International Group, which contributed to the global financial crisis of 2008 and required a $182 billion government rescue.
State regulators said at Tuesday’s industry conference that they were not blame for the worldwide recession. For more than a century, they noted, state insurance commissioners have protected consumers by setting rates and ensuring that companies remain solvent.
“There’s no need to replace state regulation,” said Ben Nelson, a former Nebraska senator and chief executive of the National Association of Insurance Commissioners.
Still, said Benjamin Lawsky, New York’s financial services regulator, state officials need to acknowledge that regulating large insurers with hundreds of subsidiaries can be difficult. AIG, for example, got in trouble by selling through subsidiaries unregulated products that essentially insured mortgage-backed securities against losses. Those losses became widespread after the housing bubble burst.
Financial reformers argue that tighter national regulation of insurers is needed because of the size, complexity, and international reach of some companies. Several including AIG, New York-based MetLife Inc., and Prudential Financial Inc. of New Jersey, have been designated by federal regulators as “too big to fail,” meaning they are subject to tighter rules.
These companies, which have expanded beyond traditional life, auto, or home insurance to offer a variety of financial products, could have to set aside more money to cushion against a financial shock, similar to what the largest banks are required to do.
MassMutual Financial Group of Springfield is not designated as too big to fail, but still expects to have to set aside a larger amount of capital because of its extensive operations, said Elizabeth Ward, an executive vice president. MassMutual sells traditional insurance products, but also has an investment management arm and offices in Hong Kong, London, and Japan.
Some additional regulation is needed, Ward said, but she warned that too much overlap between state and federal rules will increase costs to consumers.
“There are so many different regulators trying to solve the last war,” she said. “However, the coordination and collaboration isn’t there. The industry suffers, and in the end the consumer suffers.”